The Fed has been aggressively tightening monetary policy through interest rate hikes combined with quantitative easing. This is the most aggressive tightening since Paul “Tiny” Volcker in the early 1980s.But Jay “Rear View Mirror” Powell, Fed Head, has said that he is fine with that because the economy remains strong. Just look at the strong labor market.This is insane.He is looking in the rear view mirror to drive the monetary car!The labor market is a lagging indicator of the economy. He should be looking at the leading indicators which are telling us that we are going into recession.But then Rear View Mirror Powell has twice said that there would be pain to make sure that inflation is contained.So here is the question: Will the weak labor market cause Jay to flinch and stop the tight mo

The inventor of the Kelly Formula was John Kelly. He was an engineer in Bell Labs in New Jersey.At the time, in the 1950’s, Bell Labs was the center of the technology universe. Of course, Bell Labs was where telephony was being driven forward.Bell asked Kelly to come up with a formula that would maximize the amount of data that could go through a copper wire. The more data Bell could push through a copper wire, the more money AT&T would make.So he came up with what we call the Kelly Formula.I’ll come back to the formula in a minute.But Kelly is also famous for one other thing. He was the first person to get a computer to sing! Remember that computers at the time were the size of rooms!You can watch a youtube of the computer singing! Totally amazing to me!Well, it turns out that the fam

Look for copper stocks to move sharply lower in the coming months!So many people, mainly politicians, still think the economy is doing well. Even Fed Head Jumping Jay Powell thinks it is. If that is true then copper should be doing really well.But it’s not.It’s in a bear market.And it is going to go a lot lower.Why?I have been detailing for months the destruction of the house building industry. I told you it would happen months ago and it is happening right now. Home building is the biggest user of copper and home construction will be in the tank for months.The auto industry is the second largest user of copper and it will hit the skids in a minute.As the same time, third world countries are being squeezed by higher interest rates and a strong dollar so they will have to pump out much more

I want to short banks for two main reasons: The flat yield curve cuts their current income They are actually boosting earnings now by bringing back previous loan loss reserves but they will soon have to start adding to reserves. These are two huge factors for the banking sector and will increasingly weigh on the banking sector. They basically sum up the two major income streams for banks.The shape of the yield curve is a proxy for bank profitability. Most of banking profits come from, as they say, borrowing short and lending long.Translated into English that means that they get most of the money they lend from the short end of the yield curve but most of their lending goes to longer maturities.I worked as the treasurer of a Swiss Bank in one of my past lives. My job was to make sure that t

The Recession Will Be Deeper Than You ExpectThe average American and politicians seem to think the economy is fine. Fed Chairman Powell talks about how strong the labor market is to support his contention that the economy is strong.But cracks are appearing in this façade. We just technically went into a recession with two consecutive quarters of negative GDP. Consumer expectations are plunging The housing market is starting to crack But how deep will it be? Will it be 2008 all over again? Or milder or a depression?I’ll give you my opinion another day. But today, I want to focus on what the bond market thinks.I could give the case that the bond market is the smartest market there is. I don’t know if I would win that argument but I could make a good case for it.The chart shows the difference

Big changes coming!I have been outlining since late last year why I believe the US economy will move into recession late this year or early next year. During these last six months I have been pounding the table for: Selling stocks Buying the dollar Selling bonds I’m changing my tune temporarily now and looking for the different trades. The fundamental picture has changed in the last couple of weeks and I need to change my outlook accordingly.So now I want to sell the dollar and buy bonds but still look for a bear market in stocks but with a significant rally coming soon.Let me explain why. What changed?The first thing that changed was the market. We saw extreme movements in stocks, bonds, and the dollar. All moved in dramatic fashion rewarding those who followed my recommendations. But all

I have been highlighting the coming bust in the housing market for these reasons: It is the largest industry in the US Nobody seems to be concerned about it The coming bust will damage the financial sector as well. We are only at the beginning of the housing bust. Other bubbles have burst: Stocks Crypto NFTs And now housing will bust.Why?The chart tells the story. Prices went way beyond their true value over the last year. Plus the Fed has tightened so much that mortgage rates have doubled.These are two shocks to the housing market. Both caused by the Fed.The price rise shock was caused mainly by the Fed’s super loose monetary policy then was turbo charged by the Trump and Biden administrations’ lockdowns then handing out trillions of dollars of welfare, er, help to people. That boosted de

I was hired to coach one of the greatest traders of all time. I sat next to him every day for 18 months. He was uncanny. He would buy a dip in the market and the market would go higher. He would sell a rally in the market and the market would go lower. He would relentlessly make money from short term swings in the market. At the time, I was mainly a long term position trader. My strength was identifying big trends and riding them for big money. But not as much as he was making! Part of the reason he hired me was to help him on the big trends. But he didn’t want to ride the big trend. He wanted to ride the waves within the big trend. In other words, he wanted to swing trade in the direction of the big trend and make even more money! How? He would buy the dip in the big bull market and then